If any company is emblematic of the “recovery trade,” it would be cruise operator Carnival Corporation (NYSE:CCL). Indeed, you could actually use CCL stock as a gauge of how both Wall Street and Main Street are faring nearly two years after the onset of Covid-19.
And if Carnival is going to be the gauge, then it is safe to say that the recovery has been uneven. Just as soon as people felt safe to travel again, the omicron Covid-19 variant strain reminded us all that the pandemic isn’t over yet.
As we’ll see, CCL has a clear-cut resistance level which the buyers should keep their eye on in 2022. If they break through it, the sky is the limit.
A warning from an important government entity might prove to be an obstacle for Carnival and its long-term investors. On the other hand, if Carnival can make the right moves this year, the shareholders could sail to profits of 50% or more.
A Closer Look at CCL Stock
How did I come up with 50% profits? Let’s see what the math tells us about the upside potential of CCL stock.
Today, the stock is trading at $19.88. It really wasn’t very long ago — June of 2021, actually — when the share price reached $30.
CCL stock had also approached the $30 level in March and April of 2021. Therefore, the market has established a clear resistance line — and these lines are definitely meant to be broken sooner or later.
It is also true that the Carnival share price was above $50 prior to the Covid-19 pandemic. However, we have to be realistic and not get too greedy. Booking 50% profits at $30 would be a big win, wouldn’t you agree?
Staying Confident
Without a doubt, it wasn’t an encouraging end to 2021 when the The Centers for Disease Control and Prevention, also known as the CDC, issued a major warning regarding cruises.
On Dec. 30, it was reported that the CDC had recommended against going on cruises, irrespective of people’s vaccination status. This warning was given in the wake of a spike in positive Covid-19 cases on ships.
Bear in mind, though, that this was a recommendation, not a prohibition on cruises. Moreover, Carnival didn’t seem deterred by the CDC’s warning.
In January, Carnival even extended its Book with Confidence program. In this program, Carnival’s customers can “change their vacation plans up to 30 days prior to the day of departure, receiving cancellation fees as a future cruise credit to then book another voyage when the time is right.”
Big-Time Buybacks
Extending the Book with Confidence program demonstrates Carnival’s commitment to customer satisfaction. It also shows that the company isn’t in panic mode regarding cruise cancellations.
This isn’t the only program that Carnival revealed recently, by the way. As it turns out, Carnival recently disclosed a share-buyback program potentially valued at hundreds of millions of dollars.
In the summer of 2021, Carnival had filed with the U.S. Securities and Exchange Commission (SEC) to sell up to $500 million worth of its stock shares through an at-the-market offering. Fast-forward to January 2022, and Carnival revealed that it intends to use the net proceeds from that offering “to purchase an equivalent number of Carnival plc ordinary shares.” Any remaining net proceeds from the offering will be used for general corporate purposes.
Now, that is a major sign of self-confidence. Undoubtedly, Carnival wouldn’t buy back millions of dollars’ worth of its own stock shares unless the insiders believed that the company’s recovery is real and will continue throughout the year.
The Bottom Line on CCL Stock
If the CDC’s warning is deterring you from booking a cruise, that is fine. Still, there are assuredly plenty of folks who are ready and willing to go on cruises this year.
Extending the Book with Confidence program and initiating the share-buyback program are two signs that Carnival is moving full steam ahead despite the CDC’s recommendation.
Therefore, it is perfectly fine to consider a position in CCL stock, with a target of $30 for the medium- to long-term.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.